Novellus Systems (NVLS) 8-K Novellus Systems Reports Fourth Quarter and Year-end Results

Exhibit 99.1

Contacts:	William H. Kurtz	Robin Yim
	Executive Vice President and Chief Financial Officer	Investor Relations
	Novellus Systems, Inc.	Novellus Systems, Inc.
	Phone: (408) 943-9700	Phone: (408) 943-9700

FOR IMMEDIATE RELEASE

NOVELLUS SYSTEMS REPORTS FOURTH QUARTER AND YEAR-END RESULTS

SAN JOSE, Calif., January 24, 2007—Novellus Systems, Inc. (NASDAQ: NVLS) today reported net sales and results of operations for its fourth quarter and year ended December 31, 2006. Net sales for the fourth quarter were $438.5 million, down $5.5 million or 1.2 percent from third quarter 2006 net sales of $444.0 million, and up $106.2 million or 32.0 percent from fourth quarter 2005 net sales of $332.3 million. Net income for the fourth quarter was $42.6 million, or $0.34 per diluted share, down $27.4 million or 39.2 percent from third quarter 2006 net income of $70.0 million, and up $19.6 million or 85.2 percent from fourth quarter 2005 net income of $23.0 million.

The fourth quarter results reflect a $1.9 million pre-tax reversal of a previously recorded restructuring accrual resulting primarily from a change in estimated sublease income over the remaining lease term. Also recorded in the fourth quarter was a tax charge of $46.1 million related to the planned implementation of a new global business structure. In future years we expect to achieve a lower tax rate, as well as business efficiencies, as a result of this new business structure. The tax charge was partially offset by an $8.5 million tax benefit attributable to the settlement of an IRS audit. As a result, the fourth quarter tax rate was 62.3%. The fourth quarter 2006 net income would have been $79.0 million, or $0.63 per diluted share, excluding these items. The third quarter 2006 results did not include any unusual charges or benefits. The fourth quarter 2005 results reflect net pre-tax restructuring and other charges of $5.9 million. Without the restructuring charges, fourth quarter 2005 net income would have been $26.6 million, or $0.20 per diluted share. A reconciliation of pro forma operating results to U.S. generally accepted accounting principals (“GAAP”) results is included in the financial statements below.

Net sales for the fiscal year 2006 were $1.66 billion, up $318.0 million or 23.7% compared with net sales of $1.34 billion in fiscal year 2005. Net income for the year was $190.0 million or $1.50 per diluted share, compared with fiscal year 2005 net income of $110.1 million, or $0.80 per diluted share.

The fiscal year 2006 results include a pre-tax benefit of $1.5 million from the cumulative effect of a change in accounting principle due to the adoption of SFAS 123(R), a pre-tax net restructuring charge of $10.7 million, a pre-tax charge of $3.3 million for a legal settlement and the $46.1 million tax charge and $8.5 million tax benefit discussed above. Without these charges and benefits, net income for 2006 would have been $235.3 million, or $1.86 per diluted share. In comparison, the fiscal year 2005 results included pre-tax net restructuring charges of $9.2 million and a pre-tax inventory write-down of $5.3 million. Without these charges net income, for 2005 would have been $118.9 million, or $0.86 per diluted share.

Bookings in the fourth quarter were $441.6 million, down 6.1 percent over third quarter 2006 bookings of $470.3 million. Shipments of $390.2 million in the fourth quarter represent a decrease of $24.1 million or 5.8 percent from $414.2 million reported for the third quarter 2006. Deferred revenue at the end of the fourth quarter was $100.3 million, a decrease of $48.3 million or 32.5 percent from $148.6 million at the end of the third quarter of 2006.

Cash, cash equivalents, restricted cash and short-term investments as of December 31, 2006 were $993.2 million, an increase of $179.9 million or 22.1 percent from the third quarter of 2006 ending balance of $813.3 million.

The financial measures set forth above that present net income excluding certain charges and benefits, revenue on a shipments basis and bookings, are not in accordance with GAAP. The Company believes that these non-GAAP financial measures provide further insight into the results of operations and enhance the consistency and comparability of those results to results in prior periods because they assist shareholder understanding of the effects of certain charges and benefits on the quarter’s results.

“2006 was a record year for bookings, shipments and revenues”, said Richard S. Hill, chairman of the board and CEO. “In addition to our strong top line growth, we significantly improved our bottom line performance as a result of the initiatives we have taken to strengthen our product portfolio and improve our financial operating model.”

“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995:

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding (i) our continued progress to improve our bottom line performance resulting from the initiatives we have taken to strengthen our product portfolio and improve our financial operating model, (ii) our expectation that we will achieve a lower tax rate in future years and (iii) our belief that we will improve business efficiencies as a result of the Company’s new global business structure, as well as other matters discussed in this news release that are not purely historical data, are forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those contemplated by such statements. These risks and uncertainties include, but are not limited to, the Company’s ability to accurately assess and strengthen the Company’s product portfolio and financial operating model due to market fluctuations and unanticipated economic and industry downturns; the Company’s ability to achieve greater tax efficiency and thereby lower the Company’s tax rate in future years; the Company’s ability to efficiently implement the new global business structure, and other risks indicated in our filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2005, our Quarterly Reports on Form 10-Q for the quarters ended September 30, 2006, July 1, 2006 and April 1, 2006, and our Current Reports on Form 8-K and amendments to such reports. Forward-looking statements are made and based on information available to us on the date of this press release. We do not assume, and expressly disclaim, any obligation to update this information.

About Novellus:

Novellus Systems, Inc. (NASDAQ: NVLS) is a leading provider of advanced process equipment for the global semiconductor industry. The company’s products deliver value to customers by providing innovative technology backed by trusted productivity. An S&P 500 company, Novellus is headquartered in San Jose, CA with subsidiary offices across the globe. For more information please visitwww.novellus.com

NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)	Three Months Ended									Year Ended
(Unaudited)	December 31			September 30			December 31			December 31			December 31
	2006			2006			2005			2006			2005
Net sales	$	438,505		$	444,032		$	332,268		$	1,658,516		$	1,340,471
Cost of sales		212,985			217,507			191,767			834,167			741,345
Gross profit		225,520			226,525			140,501			824,349			599,126
%		51.4	%		51.0	%		42.3	%		49.7	%		44.7	%
Operating expenses:
Selling, general and administrative		68,932			67,664			51,489			261,389			206,939
Research and development		56,475			60,645			60,492			244,201			247,315
Restructuring and other charges (benefits)		(1,894	)		—			5,888			10,735			9,175
Legal settlement		—			—			—			3,250			—
Total operating expenses		123,513			128,309			117,869			519,575			463,429
%		28.2	%		28.9	%		35.5	%		31.3	%		34.6	%
Income from operations		102,007			98,216			22,632			304,774			135,697
%		23.3	%		22.1	%		6.8	%		18.4	%		10.1	%
Other income, net		10,881			9,574			13,368			34,145			22,916
Income before income taxes and cumulative effect of a change in accounting principle		112,888			107,790			36,000			338,919			158,613
Provision for income taxes		70,314			37,770			13,010			149,851			48,506
Income before cumulative effect of a change in accounting principle		42,574			70,020			22,990			189,068			110,107
Cumulative effect of a change in accounting principle, net of tax		—			—			—			948			—
Net income	$	42,574		$	70,020		$	22,990		$	190,016		$	110,107
Net income per share:
Basic
Income before cumulative effect of a change in accounting principle	$	0.35		$	0.57		$	0.17		$	1.51		$	0.80
Cumulative effect of a change in accounting principle, net of tax		—			—			—			0.01			—
Basic net income per share	$	0.35		$	0.57		$	0.17		$	1.52		$	0.80
Diluted
Income before cumulative effect of a change in accounting principle	$	0.34		$	0.57		$	0.17		$	1.49		$	0.80
Cumulative effect of a change in accounting principle, net of tax		—			—			—			0.01			—
Diluted net income per share	$	0.34		$	0.57		$	0.17		$	1.50		$	0.80
Shares used in basic per share calculation		122,766			122,150			133,980			125,286			137,447
Shares used in diluted per share calculation		124,447			123,357			134,752			126,483			138,423

1

NOVELLUS SYSTEMS, INC.
RECONCILIATION OF THE STATEMENTS OF O PERATIONS
(EXCLUDING CERTAIN CHARGES AND BENEFITS)⁽¹⁾

(In thousands, except per share amounts)	Three Months Ended								Year Ended
(Unaudited)	December 31			September 30		December 31			December 31			December 31
	2006			2006		2005			2006			2005
Net income excluding certain charges and benefits	$	78,979		$	70,020	$	26,611		$	235,310		$	118,947
Charges and benefits:
Cumulative effect of a change in accounting principle		—			—		—			1,542			—
Restructuring and other (charges) benefits		1,894			—		(5,888	)		(10,735	)		(9,175	)
Inventory write-down		—			—		—			—			(5,250	)
Legal settlement		—			—		—			(3,250	)		—
Total charges and benefits		1,894			—		(5,888	)		(12,443	)		(14,425	)
Adjustments on provision for income taxes:
Tax effect of the above charges and benefits		(720	)		—		2,267			4,728			5,585
Settlement of IRS audit		8,527			—		—			8,527			—
Tax charge associated with new global business structure		(46,106	)		—		—			(46,106	)		—
Net income	$	42,574		$	70,020		22,990		$	190,016		$	110,107
Net income per diluted share excluding certain charges and benefits	$	0.63		$	0.57	$	0.20		$	1.86		$	0.86
Charges and benefits:
Cumulative effect of a change in accounting principle		—			—		—			0.01			—
Restructuring and other (charges) benefits		0.02			—		(0.05	)		(0.09	)		(0.06	)
Inventory write-down		—			—		—			—			(0.04	)
Legal settlement		—			—		—			(0.03	)		—
Adjustments on provision for income taxes:
Tax effect of the above charges and benefits		(0.01	)		—		0.02			0.04			0.04
Settlement of IRS audit		0.07			—		—			0.07			—
Tax charge associated with new global business structure		(0.37	)		—		—			(0.36	)		—
Net income per diluted share	$	0.34		$	0.57	$	0.17		$	1.50		$	0.80

(1) The reconciliation of the statements of operations (excluding certain charges and benefits) is intended to present our operating results, excluding certain charges, benefits and related adjustments on provisions for income taxes. The reconciliation of the statements of operations is not in accordance with or an alternative for U.S. generally accepted accounting principles and may be different from similar measures by other companies.

NOVELLUS SYSTEMS, INC.
SCHEDULE OF SHARE-BASED CO MPENSATION

(In thousands)	Three Months Ended									Year Ended
(Unaudited)	December 31			September 30			December 31			December 31			December 31
	2006			2006			2005			2006			2005
		(1	)		(3	)		(2	)		(1	)		(2	)
Cost of sales	$	179		$	400		$	264		$	1,425		$	736
Selling, general and administrative		5,792			5,516			778			22,337			2,168
Research and development		2,713			2,741			468			11,179			1,305
Total share-based compensation expenses		8,684			8,657			1,510			34,941			4,209
Benefit from income taxes		2,866			2,857			581			11,531			1,620
Net share-based compensation expenses	$	5,818		$	5,800		$	929		$	23,410		$	2,589

(1)	Amounts include amortization expense related to stock options of $5.9 million and $25.1 million, employee stock purchase plan of $0.6 million and $2.4 million, and restricted stock awards of $2.2 million and $7.5 million for the three and twelve months ended December 31, 2006, respectively.
(2)	Amounts include amortization expense related to restricted stock awards of $1.5 million and $4.2 million for the three and twelve months ended December 31, 2005, respectively.
(3)	Amounts include amortization expense related to stock options of $6.5 million, employee stock purchase plan of $0.6 million, and restricted stock awards of $1.7 million.

NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)	December 31,		December 31,
	2006		2005
	(Unaudited)		*
ASSETS
Current assets:
Cash and short-term investments	$	849,407	$	654,983
Accounts receivable, net		310,888		391,791
Inventories		198,571		193,787
Deferred taxes and other current assets		142,439		122,951
Total current assets		1,501,305		1,363,512
Property and equipment, net		364,599		423,749
Restricted cash		143,769		140,212
Goodwill		225,431		255,584
Intangible and other assets		122,012		107,192
Total assets	$	2,357,116	$	2,290,249
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	261,659	$	253,984
Deferred profit		41,351		68,718
Income taxes payable		37,750		5,898
Current obligations under lines of credit		15,559		15,744
Total current liabilities		356,319		344,344
Long-term debt		127,862		124,858
Other liabilities		38,556		41,764
Total liabilities		522,737		510,966
Shareholders’ equity:
Common stock		1,393,588		1,393,805
Retained earnings and accumulated other comprehensive income		440,791		385,478
Total shareholders’ equity		1,834,379		1,779,283
Total liabilities and shareholders’ equity	$	2,357,116	$	2,290,249

* The December 31, 2005 condensed consolidated balance sheet was derived from our audited consolidated financial statements.